Porterhouse Company Incurs Both Fixed and Variable Production Costs

question 84

Multiple Choice

Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total variable costs would:

• A)increase by 20%.
• B)remain the same.
• C)increase by an amount less than 20%.
• D)decrease by 20%.

---

Definitions:

Constant-Cost Industry

An industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.

Resource Prices

The costs associated with acquiring the inputs or factors of production, such as labor, capital, and natural resources.

Output Increased

A scenario where production levels rise due to enhanced efficiency, greater demand, or improvements in labor and capital.

Increasing-Cost Industry

An industry in which expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs.